California Businesses Need to Protect Their Trade Secrets

California companies spend millions of dollars every year developing trade secrets – everything from complex processes and programs to simple customer lists. These companies need to be ever-vigilant in maintaining the secrecy of these trade secrets otherwise they risk losing the protection they are afforded for these secrets under the law. However, these protections do not always stop unscrupulous competitors and former employees from exploiting these trade secrets for their own gain.

Trade Secrets in California

Under California law, a trade secret is any information – including a formula, program, device, method, process, pattern, or technique – that derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use.” Also, a trade secret owner must take all reasonable steps necessary under the circumstances to keep the information a trade secret – without which it may lose protection.

Misappropriation is defined two different ways under California’s Uniform Trade Secret Act. First, misappropriation can be the acquisition of another’s trade secret by someone who knows, or has reason to know, that the trade secret was obtained by improper means. Or second, misappropriation can be the use or disclosure of another’s trade secret without consent, expressed or implied, by someone who:

  • Used improper means to obtain knowledge of the trade secret, or
  • Before a change in their position, knew or had reason to know the information was a trade secret and that knowledge of the trade secret had been obtained by mistake or accident, or
  • At the time of the use or disclosure, knew or had reason to know, that their knowledge of the trade secret was 1) derived from someone who had used improper means to obtain the trade secret, or 2) obtained under a situation giving rise to a duty to limit the use of the trade secret or maintain its secrecy, or 3) derived from someone who owed a duty to the owner of the trade secret to limit its use or maintain its secrecy.

Using improper means includes outright theft of a trade secret, in addition to bribery, espionage, misrepresentation or a breach of a duty to maintain secrecy. It is important to note, that reverse engineering by itself – or independently creating the trade secret yourself – generally is not enough to establish improper means.

Also, as the plain statutory language above illustrates, misappropriation is not limited to the original act of improperly obtaining the trade secret, but also includes the “use” of a trade secret after it has been improperly obtained.

California case law has determined that seeking customers using trade secret information or exploiting private information in the production, research or marketing of products that utilize the trade secret, are all considered the “use” of a trade secret.

Protecting Trade Secret From Past Employees

Probably one of the most common circumstances of trade secret misappropriation, and subsequent business litigation, is in the employment context.

Employers often spend a great deal of time and resources training their employees, after all, they want the employees to be as productive as possible. During this training, employees are regularly exposed to confidential company information such as customer lists and internal company processes and techniques – all of which can be considered trade secrets under California law.

However, the question becomes, what happens when an employee uses the trade secrets they may have acquired from a prior employer in a subsequent job with a new employer?

Well, the first obvious answer is that the employee can be held liable for misappropriation of all improperly obtained trade secrets, but also, since misappropriation includes using a trade secret obtained improperly, the employee’s subsequent employer can possible be held liable for misappropriation as well.

For example, if an employer uses a customer list provided to them by a new employee, and the new employer knows the employee owes a duty to their prior employer to keep the list a secret, it is possible the subsequent employer can be held liable for misappropriation.

However, this is just one way a subsequent employer can be held liable for trade secret misappropriation. This article barely scratches the surface of all the laws and rules surrounding trade secret law in California – and as such should not be taken as legal advice – which is why it is always best to consult with an attorney if you believe your company trade secrets may have been misappropriated.